Shares of RetailMeNot Inc. (SALE) fell 12.6% in the month of September, according to data provided by S&P Global Market Intelligence, primarily due to the fallout of a single negative analyst note toward the end of the month.
More specifically, on Sept. 26, 2016, Stifel analyst Scott Devitt lowered his rating on RetailMeNot to "sell" from "hold," and -- keeping in mind shares are currently trading around $9.50 as of this writing -- simultaneously assigned a price target of $9 per share.
To explain his bearish stance, Devitt noted RetailMeNot stock had climbed an impressive 33% between his downgrade and the company's encouraging second-quarter report in early August, and argued its rise was "overextended" given the combination of "limited 2017 growth expectations" and third-party data that suggests RetailMeNot's third-quarter traffic has begun to deteriorate compared to prior trends.
"We believe the company is moving in the right direction with the integration of new verticals, new location and attribution tools, and new UI features specifically on mobile which should help offset ongoing declines in the core desktop business," Devitt elaborated. "We however maintain that the path back to sustainable growth remains uncertain at this point and shares are discounting the risks from the transition to mobile."
For perspective, last quarter RetailMeNot posted 18% growth in mobile online transaction net revenue, to 11% of total sales, while desktop online transaction net revenue fell 11% to comprised 65% of total sales. Meanwhile, RetailMeNot's in-store and advertising net revenue increased 37% to comprise the remainder of total sales. But total visits to RetailMeNot's websites fell 7% year over year, to 152 million, 45% of which came from mobile users. And mobile unique visitors grew just 2% year over year, to 18.8 million.
So if the data Devitt is citing is correct in indicating traffic trends have taken a turn for the worse, it's hard to imagine investors would take kindly to the news given RetailMeNot's already-underwhelming mobile growth. So until RetailMeNot shows evidence of healthy traffic trends, I agree investors would be wise to watch its progress from the sidelines.